EP424: Five Things for Hospital System Execs to Get Real About in 2024

Introduction and Overview

[00:00:05] Stacey Richter: Episode 424, "Five Things For Hospital System Execs To Get Real About In 2024". Today, I speak with Peter Hayes. 


American Healthcare Entrepreneurs and Executives You Want To Know. Talking. Relentlessly Seeking Value.

The Importance of Value in Healthcare

[00:00:33] Stacey Richter: Here's a quote from Ann M. Richardson. She wrote this on LinkedIn and I love it. She wrote, "Quiet the noise that doesn't add value. Surround yourself with intelligent and respectful people who can deliver endless opportunities. Celebrate brilliance and new beginnings. Together we've got this." Thanks for this beautifully stated call to action. I wish I would have written it myself because it is also precisely the goal of Relentless Health Value. And my hope for the Relentless Health Value Tribe, those of you who have connected with each other. 


By way of this podcast, LinkedIn, or maybe you've met each other at an online or live event, for sure subscribe to the weekly email to get notified of such goings on. Now, this aspirational vision doesn't mean putting the onus on just any given individual to fix the systemic failings that get talked about on the podcast. 


But we can start somewhere. We can sit with ourselves. We can ask ourselves some big questions. We can decide the legacies we want to leave and what we want our life's work to add up to. That is what this show should, I hope, help you accomplish. And yeah, together we've got this.  


Discussion With Peter Hayes: Realities of 2024 for Hospital Chains

[00:01:47] Stacey Richter: Today, I am speaking with Peter Hayes, and we talk about five realities of 2024 for hospital chains, integrated delivery networks, health systems.  


Now, to make one thing very clear, as I have said many times on many Relentless Health Value shows, not all hospital chains or hospitals are the same. There are large, consolidated, extremely rich, extremely politically and economically powerful organizations who are called Health Systems. And then there are rural or urban institutions that are barely scraping by and serving huge, vulnerable patient populations. 


And despite the many aforementioned names for hospital chains and their associated outpatient facilities and owned physician groups and urgent care centers, all these names for these big care delivery entities are flabbergastingly meaningless because they do not separate the consolidated rich ones from the very desperately not rich ones. 


Today on the show, we're talking about the first kind of health systems, the big, rich, consolidated ones, which are taking over every geography where there's money to be made. These are the ones where you read about their bad behavior in the New York Times or hear about them in YouTube videos like the one I will link to in the show notes. 


Peter Hayes talks about the five things that these behemoth entities may really need to start thinking hard about, even in the face of their fierce and often unrelenting market power and the political hold that they have over many local communities and all the regulatory capture that goes along with that. 


So here's Peter's list in a nutshell of the five things to get real about.  


Understanding the Consolidated Appropriations Act

[00:03:26] Stacey Richter: Number one, health systems need to get real about the CAA, the Consolidated Appropriations Act and its implications that plan sponsors only pay fair and reasonable prices for medical services.  


Now, before I dig in on this, jargon alert. When we say plan sponsors, that means entities such as self-insured employers, sponsors of health plans, if you will, the purchasers, the ones who are actually paying the bills. So back to point one, Peter explains the quick version of what the Consolidated Appropriations Act is in the show that follows, so do listen. 


But for more info on this really, really meaningful bit of legislation, that is the law as of 2021, go back and listen to the episodes with Chris Deacon or check out the myriad of LinkedIn posts, I'll link to them in the show notes from Jeff Hogan. Also, others like Darren Fogarty, Justin Leader, Jamie Greenleaf, and others have some great words of wisdom that you will be able to find that really explain what the point is of the CAA, the Consolidated Appropriations Act, and its sprawling implications. 


Surviving on Reduced Commercial Reimbursements

[00:04:34] Stacey Richter: Here's Peter's number two point to survive on reduced commercial reimbursements. How systems need to get real about becoming ruthlessly aggressive in driving administrative and technology efficiencies.  


Pivoting from Fee for Service to Episode Based Care

[00:04:47] Stacey Richter: Number three, they need to get real about pivoting from fee for service reimbursements to episode based care. 


Based on taking real downside risk for good clinical outcomes, they need to pivot from a mindset of maximizing patient revenue to maximizing patient health. They need to move from a sick care reimbursement model to a healthcare reimbursement model based on health.  


Transparency and Accountability in Healthcare

[00:05:07] Stacey Richter: Number four point, they need to get real about being completely transparent and accountable in reporting how they are using the value of their tax exempt status. 


Similarly, they need to account for and report how they're using the estimated 55 billion in net margins that they're realizing off the 340B drug program.  


Quality and Patient Safety in Hospitals

[00:05:28] Stacey Richter: Number five, they need to get real about quality and patient safety. We still have about 46 percent of our hospitals that have a C or lower LeapFrog rating. 


And by the way, the chance of having a fatality on an avoidable error is 90 percent higher at a C or lower rated LeapFrog entity versus a LeapFrog entity that has an A or a B. Now some of you, and by some of you I mean practically everybody listening, is thinking of reasons why any one of these get real about things is arguable or how one of the above is not holding up in some market. 


Addressing the Challenges in the Healthcare System

[00:06:04] Stacey Richter: I think Peter would tell you the same thing that I would, you're not wrong, but trying to predict a zeitgeist or the next pet rock never works well because it's always a confluence of right time, right place, where the whole is way more than the sum of its parts. I mean, think about Malcolm Gladwell's "The Tipping Point". 


It's about how small changes can have enormous effects if the context is right. So now contemplate these five things that Peter brings up. All these forces are pushing in the same direction. Put it all into a stew where 48 percent of Americans have delayed or foregone care due to cost. Listen to the show with Wayne Jenkins for more on that. 


Or you have the article John Tozzi just wrote in Bloomberg the other day. Here's the quote. "In one California community, teachers have to pay an extra 10 grand a year to upgrade to insurance that covers the local hospitals. Teachers who can't afford it give birth outside the county. Meanwhile, insurers are making record profits along with hospital CEOs and C suites." 


At the same time, you know who I think is the third biggest group with medical debt in this country? Yeah, it's people who work in hospitals. Nurses, others, there's this frothing lack of trust for hospitals and what goes on there. 30 percent of physicians do not trust the leadership of their health system. 


And no wonder, there are examples of healthcare executives sitting up there in their palatial offices acting more like mobsters than the nuns they took over the hospital from. So to orient your context, you are here. Peter Hayes is the newly retired former president and CEO at the Healthcare Purchaser Alliance of Maine. 


He is a national presence in healthcare strategy, innovation, and a keynote speaker.  


The Impact of Hospital Pricing on Healthcare

[00:07:51] Stacey Richter: For more on the wild ass problems with hospital pricing, I'm going to put a list of shows in the show notes, but spoiler alert, some of these are hair raising. My name is Stacey Richter. 


This podcast is sponsored by Aventria Health Group.  


Interview with Peter Hayes

[00:08:05] Stacey Richter: Peter Hayes, welcome to Relentless Health Value.  


[00:08:07] Peter Hayes: Well, thank you. It's great to be here.  


[00:08:09] Stacey Richter: You have put together five things that hospitals or integrated delivery networks, health systems 


really need to get real about in 2024. Let's start at the top of your list.  


Understanding the Implications of the Consolidated Appropriations Act

[00:08:23] Stacey Richter: What's your first thing that hospitals need to get real about?  


[00:08:26] Peter Hayes: The implications of the Consolidated Appropriations Act, which is really assigning total fiduciary responsibility to plan sponsors to make sure that they are only paying fair and reasonable prices for all of the services that surround their health benefits offering. 


And it really has implications because for the first time everybody that touches the health plan as far as a decision maker, the C suite, the head of HR actually have a personal life fiduciary liability that if they're not managing those dollars to a fair and reasonable price, they are personally financially at risk. 


And that really is going to change the landscape. As it relates to hospitals, they really need to be aware of that because they're going to start getting lots of questions about what are their prices for services, what are the quality and how do those prices compare to others in the marketplace.  


[00:09:28] Stacey Richter: Recapping what you said there. So we have the CAA, the Consolidated Appropriations Act, which went into effect 2021. And what that does is it clarifies obligations for plan sponsors, as you called them. I've also heard them called purchasers, which basically means self-insured employers buying healthcare on behalf of employees or plan members. 


These individuals, and you mentioned personal liability, right? Because we're talking about individuals.  


The Shift from Fee for Service to Episode Based Care

[00:09:56] Stacey Richter: Somebody has to sign off on the plan every year, a test or whatever they call it, right? That whoever's in charge of that plan. They have to attest that the plan has acted in the best interest of its members, that prices paid were fair, reasonable, and then, I mean, there's been show after show about hospital prices on Relentless Health Value here, just how unreasonable some of those prices are.  


[00:10:23] Peter Hayes: There are national studies, Sage Hospital Transparency, it lists every single hospital in the country. It is showing what that hospital is reimbursed as a percentage of Medicare for the services that it's offering. 


For instance, in the state of Maine, when you start talking about fair pricing, there's a hospital in Maine that is about 200% of Medicare. There's another hospital on the other end at 350%. So if you just take a knee replacement, if the Medicare reimbursement for a knee replacement is $10,000. There is one hospital in Maine that is charging $20,000 for a knee replacement to the commercial marketplace. 


And there's another hospital that's charging $35,000 for that same procedure. And for the fiduciary piece, if you look at those two facilities, The one that's at lower price is a five star rating from the CMS rating, so very high quality.  


Transparency and Accountability in the Use of Tax Exempt Status and 340B Program

[00:11:22] Peter Hayes: The one on the other end of the spectrum is a two star rating, which is near the bottom. 


So from a fiduciary point of view, they have to justify why they would spend $15,000 more for a lower quality procedure. And presumably, they are at risk if they can't justify why the plan is paying that higher rate. Across the country, the average reimbursements for hospitals is about 248 percent of Medicare. 


I just said Maine ranged from, you know, 200% to 350%. There is growing support that about 200 percent of Medicare is a fair and reasonable price. Anything over that. is not what that means as we talked about consequences for hospital. If you take Maine, the state average is 275%. If they were to move from 275 percent of Medicare in the reimbursement that they're charging the private and commercial market and you move them to 200 percent of Medicare, that is a 40 percent reduction in their current revenue that they're receiving from the commercial market. 


That is a huge adjustment that they're going to need to start thinking about how can they operate in that type of environment.  


The Importance of Quality and Patient Safety in Hospitals

[00:12:44] Stacey Richter: Yeah. So let me just summarize. If I put myself in the shoes of a purchaser of a plan sponsor. And I'm seeing there's a lot of work that's going on at the national level right now, which as you said, shows that a reasonable commercial rate is about 200 percent of Medicare. 


And then you look and you can look at NASHP with the Sage Transparency Project we had Gloria Sachdev and Chris Skisak on the pod last year talking about this work. You can check what a local hospital is as a percentage of Medicare. As you said, in Maine, they're going from 200 percent of Medicare to 350 percent of Medicare. 


If I'm putting myself in the shoes of a purchaser with personal liability here, to ensure that I'm spending plan dollars prudently, I could see that I would be quite concerned if I was paying 150 percent more to certain hospitals, and then the knee replacement case study that you gave, I think was really poignant that you have a really good hospital charging $20K for a knee replacement, you have a two star hospital, so a not good hospital charging $35,000, which is not quite double. 


Right? Like, you know, my litigation alarm bells are going off because any plan member that would get a poor outcome from this hospital that was effectively dangerous to go to, and plan dollars were being spent imprudently, really, for a service that was effectively dangerous. I definitely can feel that I might be concerned and as you said, if all of these purchasers refused to pay more than the 200 percent benchmark. 


That would be a 40 percent reduction in hospital revenue. You know, another thing going on, obviously, is the Medicare Advantage plans are using their commercial business as leverage to get less Medicare Advantage rates, which as a, again, as the fiduciary of those commercial plans where their rates are getting pushed up so that the payer can get lower Medicare Advantage rates. 


Like all of this is not sound if you're thinking about this from a fiduciary standpoint.  


[00:14:54] Peter Hayes: Yeah, and that's a great point actually in Maine because there's as I said at the top, there's lots of more information out there on transparency tools. Leon Wisniewski has done a lot, but he shows that 70 percent of the time, and our health systems across the country, if you pay cash, 70 percent of the time, the cash price for services is less than what the insurers are paying in exact, in our state, the largest health system, the cash price for a knee replacement is $15,000. And you're exactly right. The largest health plan in the state is in joint partnership with this hospital and a Medicare Advantage plan. 


The negotiated rate for the health plan that's in partnership is the same as the cash price, $15,000, but they're charging $45,000 in the commercial market. So you can see there's a huge cost shift that's taking place that the health plans are negotiating to their benefit and really passing on those costs, their margins to the individual and commercial market. 


And that's happening across the country.  


[00:16:04] Stacey Richter: So you mentioned Leon Wisniewski, I think his product, his transparency product is called Billy, right?  


[00:16:09] Peter Hayes: It is now. It was Medical Cost Labs. It's now Billy, yup.. And it does that.  


[00:16:14] Stacey Richter: I could see in a market where you have an employer, maybe the employer is part of a coalition, but in some that employer and or their compatriot employers have a large percentage of the local market because now they've got leverage and now they can go into the hospital system. 


Even if it's consolidated and potentially have some leverage here, but there's so many situations across the country where the consolidated hospital systems are so large. I heard someone say they're too big to succeed.  


[00:16:51] Peter Hayes: That's a good one.  


[00:16:51] Stacey Richter: So you know, there are these gigantic entities that have so much leverage just given their expansive size that if an employer like, “Hey, we could get sued seriously, you should lower your prices.” 


And the consolidated hospital system is like, “talk to the hand”.  


[00:17:10] Peter Hayes: Yeah. I mean actually that played out. Maine is sort of at the end of the country. It's a little microcosm of the world, but there are two factors at play. We actually had the largest health plan in the state, which was a Blues plan, and the largest health system, which delivers about 60 percent of care, so they have a really dominant share, had a signed contract. 


And in the middle of the contract, the health system blew it up and basically said the coming year we're not going to serve any of that health plan's members unless they reopen the contract and they get what they want. And it actually was played out in the press, but at the end of the day, that health system had so much concentrated power that it actually could demand what it wanted to be reimbursed from the larger insurer. So if a large insurer can't move the dial, it's really tough for individual employers in the marketplace, even though they may be the largest in the state to have that leverage to move that dial.  


Conclusion and Final Thoughts

[00:18:12] Peter Hayes: You know, one of those solutions that's being solved that really addresses the fiduciary piece was really gaining traction are sort of index pricing. 


There are some health plans now, insurers that you can go to if you're self-insured that ties reimbursement directly to a percentage of Medicare. There's no negotiation of discounts. There is no secret deals behind the scenes. They basically, you pick a number, if it's 200 percent of Medicare, that's what they reimburse and then they will challenge the health systems on the backside of that if they try to collect balances due. 


Those vendors that are doing that are really gathering steam because that really helps that plan sponsor purchaser say, hey, look, these are the steps we have taken to pay only fair and reasonable prices for healthcare. And I think that's going to be one of the ultimate levers that kind of moves the dial here. 


[00:19:07] Stacey Richter: So in certain markets. Being a fiduciary is rough because you have these entities with lots of local power. One potential solution here as a fiduciary is to hire one of these indexed vendors who do a bunch of different things. And that's probably a whole show in and of itself. 


But they're paying a percentage over Medicare as an indexed price or a new form of referenced based pricing. 


Let's move on to your number two thing that a hospital system really needs to get real about in 2024.  


[00:19:43] Peter Hayes: The second thing is commercial reimbursement rates are going to creep closer to some lower percentage of Medicare reimbursement. 


Which means in order for them to survive, they're going to have to become much more real about what becoming ruthlessly aggressive when kind of driving administrative and technology efficiencies. And when you actually look at that and to put it into context, MedPAC, Medical Payment Advisory Committee that was established in 1997 by Congress, looked at hospitals across the country and said, there's only about 15 percent of hospitals in the country that are actually efficient. 


And they really define efficiency by looking at how are they performing their services. And it's interesting. Some of the pushback against the Medicare reimbursement rate is, gee, Medicare, this will be the American Hospital Association, they'll say, Medicare drastically underpays for services. 


What they found, though, that these 15 percent of hospitals that are efficient actually make a positive margin of Medicare of 1 percent versus most hospitals lose 5%, that their mortality rate is 92 per 1,000 versus 101, about 10 percent less. And their overall margin is 7%. So, what that shows is there are some hospitals that have really figured out, like other industries, other competitive industries, how they can really be very efficient at what they do. 


There's models out there, those 15 percent of hospitals that are doing it, would serve as a great example to other health systems. But if you look at what's happened as far as increases in cost in health systems from the professional point of view, what they're paying physicians and the professionals in the hospital versus administrative, the administration has just dwarfed what has increased in sort of the salaries for the actual direct care providers. 


So there's huge opportunities there to really drive some efficiencies so that they can survive on a lower reimbursement level like every other sort of competitive industry has done.  


[00:21:56] Stacey Richter: In sum, your number two thing that hospitals really need to get real about is that it's, we just talked about this relative to your first thing, but it's kind of inexorable that commercial rates need to diminish. 


You have plan sponsors, a 60 percent of an average plan sponsors, healthcare spend goes to hospitals. So you know, everybody's thinking specialty drugs or something like that, but 60 percent is going to health systems. So, we have a huge chunk and it's not like they're unaware of this, right? So we do have, this is a large part of the spend, you know, you had 32BJ, we had Cora Opsahl on the program, they cut the most expensive hospital out of their network and the plan saved $35 million. This is a chump change here and plan sponsors are, despite the, I'm going to say relative imbalance of power on the, especially some of these large consolidated health systems have over plan sponsors. We are coming to an untenable situation where the plan sponsors just simply cannot afford to do this. 


Like they won't be able to offer health benefits. If the current trend continues relative to hospitals, basically just, they just lump all their expenses in a bucket, whether they're efficient or not, and then try to charge more than that. The top line just can be whatever they want it to be, really. 


This situation cannot continue. So it really is going to be put on health systems to be cost efficient in how they are operating. You mentioned that we do have 15 percent of hospital systems who actually are efficient. And the interesting thing is that they actually have lower mortality rates, which doesn't shock anyone who ever took any Edwards Deming class of Six Sigma or anything like that. Like if you have, when you start to get efficient, you have to start standardizing best practices. And then what happens is your defect rate lowers. Like it's probably the most inefficient and most expensive when there's no standardization. I have a conversation coming up with Rik Renard, who like this is going to be the whole topic of the conversation, just how little care pathways follow evidence, how few care pathways that there actually are. 


And this is also going on with another pressure, which is the staffing shortages. You could look at the staffing shortages as a huge challenge, which it certainly is, but this is also an opportunity. 


You look at what nurses are doing. I have a friend of mine that's a nurse and like every time she does something, she has to enter it into three EHR systems. This is not a good use of time. It's so obvious. And yet, stuff like this seems to be quite pervasive in hospitals.  


[00:24:28] Peter Hayes: Some factoids, and just kind of going back to what we talked about, the Committee for Responsible Federal Budget has estimated that if we get to 200 percent of Medicare, that would save $1 trillion of investment in healthcare over the next decade. 


And actually, Massachusetts had this fascinating statistic, as they took a look at Mass, what was happening to their healthcare spend as a state, there's growing evidence as a social determinants of health is a best predictor of healthcare costs down the road. It's food and housing and transportation and education. 


And in Massachusetts, what was happening, as their healthcare expenditures increase, which majority share, as you said, goes to hospitals, they are actually spending less on the very things that would improve health and reduce costs downstream. So it's almost this death spiral that our current health system, under its current model, just keeps taking more and more resources that could be put to other things in our society that, that we're better suited to do.  


[00:25:34] Stacey Richter: So that's interesting. As hospital prices go up, then more of the state budget is diverted to Medicaid and then also the state usually has a large, healthcare spend also for all of its employees. So like the more money that's going to hospitals, it's a zero sum game here. 


There's only so much tax dollars that can be spent. So then the social programs wind up getting cut, which creates more need for hospitals. Yikes.  


[00:26:01] Peter Hayes: Yeah, the Wall Street Journal suggested in the last decade that about 95 percent of wage stagnation for workers is because employers are diverting more and more of the payroll dollars or benefit dollars, if you will, which are salaries and all the other benefits provided. 


As they're putting more and more into healthcare, it is taken away from wage increases. So there is this death spiral that's taking place that is, is going to come to a head very quickly here.  


[00:26:31] Stacey Richter: Yeah. And you also mentioned, and then we'll move on, but the just the administrative bloat, I mean, you've got CEOs pulling in millions of dollars and the entire C-suite is pulling in multi-millions of dollars. You've got PE doing all kinds of crazy stuff with real estate. You've got these billion dollar trust funds. So like all of that plays in. We've got some very sophisticated financial interests in the mix here. 


What do we have for number three that hospitals really need to get real about right now?  


[00:26:59] Peter Hayes: The third thing is they really need to get focused on how can making sure that they're providing high quality, safe and effective care. If you actually look at us as, you know, you hear a lot of conversations, we have the best healthcare system in the world. 


If you actually look at all the industrialized countries we compete against, if you look at mortality or average age, all the other countries, average age are increasing. United States is actually decreasing, yet we spend about 3x per capita. We need to make sure the resources that we're spending on healthcare is actually producing health and not just sick care. 


But I do go back and it's really kind of the fourth bullet, but you know, LeapFrog, they continually have rated hospitals on patient safety. It's amazing to me that the vast majority of hospitals, I think there's only about 40 percent of hospitals that get an A or B rating and the rest do not, they're a C, D, or F. 


And the mortality rate's about 80, 80 to 90 percent higher if it's not an A or B rated hospital. I mean, that has huge implications just from safety and quality for all of us. You know, if you were a corporation and you have that type of issue with quality or safety, you would be shut down. If I was in the supermarket industry and we would have folks from OSHA come through, and if there was a safety issue in the deli or the food handling or restaurants face the same thing, they're shut down or fined. What's amazing to me is how can we continue to allow hospitals that let's just say have an F patient safety rating. How can they continue to get their license to operate when it's clear they're putting their patients at harm? 


And I would think that would be a moral and ethical compass that healthcare leadership would really want to address. So there's the gap between the top hospital, a lower hospital from quality, from a patient safety point of view, shouldn't be that diverse.  


[00:29:03] Stacey Richter: Summing up your main point, it's about how hospitals need to get real about providing high quality, safe and efficient care and points that you made the LeapFrog. Dr. John Rodis, who's the medical director over at QC Health, he says something frequently, which is a lower LeapFrog safety grade hospital, you're twice as likely to die at that hospital as if you go to an A rated hospital.  


[00:29:29] Peter Hayes: I mean, it's kind of you get what you pay for. To kind of sum up too, I think number three, in order to get to this high quality, safe, efficient care, hospitals need to start thinking about taking risk for providing good clinical outcomes and being reimbursed based on clinical outcomes, not procedures done or that same CFO said when there's a complication in the hospital, they earn 30 percent more revenue. 


 You know, we are going to provide a set price for an episode of care. So there's every incentive that they do that is as efficiently, and as high quality as they can. And I think changing the reimbursement models will start to drive some of that. And I think that's coming. And I think there's going to be come through regulation and possibly, you know, other mechanisms in the marketplace. 


[00:30:19] Stacey Richter: Yeah, for sure. Rob Andrews said this really succinctly in our recent podcast, he said, you get what you pay for. And he, and the example that he gave actually was maternal mortality and NICUs, right? Hospitals make a ton of money in the NICU. And you know, he was really clear to say, there's absolutely no hospital on the face of the earth that's like, Hey, let's increase our NICU admissions. 


Like that's not what's happening here. But at the same time, they're getting paid a lot of money for those NICU admissions, whereas they're not getting paid anything for preventing that NICU admission and then, oh, we're shocked that the maternal mortality in this country is, and the infant mortality is so high, it's like, that's what the incentives incent. 


What do we have for our number four here thing that hospitals need to get real about? I  


[00:31:02] Peter Hayes: think number four, and I think this is, I mean, this is fascinating and it's actually happening as we speak. The hospitals in the past ended up providing a lot of charity care and other things. So there are some things that have been structured that give them really unique advantages. 


One is 70 percent of the hospitals in this country are not-for-profit and they do not pay any state, federal, local taxes. which is significant. It's about a 30 billion a year sort of hidden healthcare tax that we all pay because we're making up a difference. And a good example of that, in our community, the largest healthcare system in the community I live in has a huge medical complex that is serving most of Southern Maine for cancer care and a bunch of other things. 


In our community, however we are foregoing as a community about $4 million a year in real estate taxes because they do not pay any property taxes on their commercial properties. And that really is a hidden tax burden to the local taxpayers are picking up what they're not paying for real estate taxes. 


They're the biggest users of emergency services and other things. And yet we're subsidizing the rest of the Southern Maine community because that's where people are going for services. So that's a huge issue and the quid pro used to be, yes, they're tax exempt, but they're giving a lot of charity care and bad debt care and they're doing things in the community. 


So that's one piece. The bigger piece that's really starting to explode is the 340B program by which hospitals originally were able to buy a lot of the high expensive drugs, specialty drugs for pennies on the dollar to make them available to serve the most vulnerable populations of communities. So that has grown into a $55 billion a year piece for the country. 


And a good example in Maine, Humera, which is a drug that's commonly used, they can buy for 10 cents a dose. In the hospital, though, they're charging the commercial market, the individual market $7,000 for that drug. So, in many cases, in some of the other communities, then that $7,000, the patients are unable to pay their deductible and they start chasing them for medical debt. 


Those are all things that I think are kind of coming to the head. And there's pending legislation in 19 states have started to say, gee, we would really like to know for the 340B program and for the tax exempt status. What are you doing? What can you show us that you're actually providing a like kind benefit back to the community? 


And the irony of it is for profit hospitals that are actually paying taxes. Give about twice as much charity care as those hospitals that are not-for-profit. So, I mean, the for profit hospitals provide 3.8 percent of their expenses back into charity care. The not-for-profit are 2.3%. So, I think increasingly, they're going to have to be much more transparent and much more diligent in disclosing to the community how the 340B benefits and how the real estate tax exemption benefits are directly going back to benefiting the most vulnerable populations. 


I actually have a colleague in the state of Michigan that did a study that showed for the 340B, the hospitals that were collecting the revenue, the margins from the most vulnerable parts of town were using those dollars. To build upscale facilities and other parts of town where they could collect additional revenues. 


So I think that cushion that's always been there, there's going to be lots of accountability, and that's going to be something that hospitals have to be much more accountable for.  


[00:34:58] Stacey Richter: I'm reminded of something that Al Lewis says a lot, and he's quoting somebody else, but he frequently says, “every good cause begins as a movement, becomes a business, and eventually degenerates into a racket.” 


So we have good intentions here, right? Like we had nuns doing charity care at the very beginning. We had the 340B program, but right now we have a situation where it's basically become a loophole that some of these entities, Eric Bricker says this all the time, “you can't solve for greed, right?” Like these entities are using to make lots of money. 


So just beginning with the charity care, you kind of split this into two sections. Charity care and then 340B, which was intended to assist in the charity care. So I guess it's sort of one thing with two pieces to it. But if we think about the charity care, there was a show with Vikas Saini and Judith Garber, the Lown Institute, did a lot of looking into relative to hospital charity care. 


First of all, charity care is not defined. You can spend, you can do marketing, put your name on the side of a ball field and like that could be charity care. You know, you could advertise for mammograms or something like that on the side of the bus depot. And like, that's, that could be considered charity care. 


Education of medical students is charity care. So no judgment. I mean, maybe that is charitable. I don't know. But the point is that there's kind of like no definitions here of what charity care even is. In that Lown Institute study, they showed the percentages of charity care. They're like shockingly single digit percentages, like low single digit, like 1 percent-ish. 


For some of the biggest, you know, in air quotes, non-profit hospitals in the country, you had that New York Times article where it was investigative journalism, which basically showed some of these non profits were actively almost obfuscating that certain patients were eligible for charitable care. Just like all sorts of stuff that's going on, which definitely is not in the service of any sort of mission of any kind. 


Right? So like, that's one end of the spectrum. Then you have this 340B stuff. I got to say, we were looking at some data the other day, it was some prescription data. And one of the things that we saw, which was striking and mysterious at the time, was that there were certain doctors in outpatient settings in rich suburbs that had no prescribing of certain drugs. 


Suspicious. What we realized was that the reason that they had no prescribing was that the scripts that they were writing were being routed to the main hospital. There's a reason why hospitals are buying all of these oncology practices far and wide. So this doctor's writing scripts, those scripts are getting routed through the hospital's 340B pharmacy, which is hundreds of miles away, hundreds of miles. 


And then to your exact point, those prescriptions are being resold to people in the suburbs at $7,000, you know, like at these high rates and then these high prices, which are being charged to the commercial plans. And then that money is being used to further the infrastructure in those rich suburbs. 


I do not believe that, that was the original intent of the program. I don't know about you.  


[00:38:05] Peter Hayes: No, I agree. I mean, it's sort of the unintended consequences. I mean, it really was a good public policy that was put in place for the right reasons. And over time, the programs put in place and then loopholes are found and individuals take advantage of them, sort of on this topic and sort of all these topics. 


You know, it really comes back to sort of an ethical and moral piece about our healthcare leadership. It is getting to the point where healthcare is going to consume a huge portion of everybody's lifetime income. I mean, it, it's becoming a significant number and that is just something we all should think about and especially around the quality piece we've already talked about. 


Let's focus on how do we keep people healthy. How do we use those dollars in a society in the best ways that we can? Chasing some of the things that we're doing just don't make a whole lot of sense. So I hope we all come together and figure out a way to kind of solve this problem going forward.  


[00:39:07] Stacey Richter: How about our number five thing, which we may have already talked about? 


[00:39:10] Peter Hayes: My fifth thing is they need to get real about quality and patient safety and eliminating the vast variants that we have across the country. If you just look at hospitals, patient safety ratings by LeapFrog rate hospitals on patient safety with letter grades A to F, 46 percent of our hospitals or about half of our hospital have a C or lower patient safety rating. 


And why that is important is if you go to that hospital, those hospitals with a lower patient safety rating for any, any reason, you have an 88 percent higher chance of having a fatality. I mean, that's not a little bit of difference. That literally is a difference between life or death when you walk through the hospital door. 


If you think about automobiles or airlines, would we get on a plane or would we allow planes to have that type of different fatality rate in crashes that are pilot era? We just need to make sure that the health industry is as accountable as some of our other industries for putting patient safety first and foremost. 


[00:40:18] Stacey Richter: Yeah, absolutely for sure. And, you know, tell all your friends and family before you go to a hospital, look it up on LeapFrog because you can see the grade. And as Peter alluded to, and we also talked about earlier, if they have a C or lower, you have a significantly larger percentage of death. So, yeah. If we're thinking about these five things in sum, if I think about each individual thing, I can, there's counter arguments, right? 


Like I can push back and a lot of it just boils down to the immense market power that some of these consolidated entities have to maintain the status quo as long as possible. Like FFS forever, but if we start thinking about these things all as forces that are pushing in the same direction, then I think the outcome that you're talking about does become a little bit more inexorable. 


I mean, maybe not this year, maybe not next year, but I just don't know how the current situation is. I think all of these things add up to a significant lack of trust amongst plan sponsors, amongst patients. Like you're seeing that in so many different studies that are coming out. And once that trust starts to erode, then you have people who are actively seeking other options and the supply side starts to respond, which sort of already is, you know, you were talking about those. 


Indexed payers, we see big box retailers getting in the picture here, you know, you see Center of Excellence Programs, you see all these vendors that are doing lots of navigation. It's the sum of the parts here that also becomes significant.  


[00:41:53] Peter Hayes: Yeah, I think that's true. But, but I also think we're at this unique point, too. 


And I mean, if you go back a little bit, one of your earlier questions is there's fierce resistance or pushback from the American Hospital Association that supports the pricing variations we talked about and other things. But what's really becoming clear in some of the work Rand has done. They have concluded that for hospital pricing, there's no relation to cost and quality, there's no relation to the payer mix, it doesn't matter what the Medicare, Medicaid payer mix is, it's not related to public health funding, it's not related to health status. 


It's related to the market power because of, as you had suggested, the consolidation and actually, you know, your suggestion, we talked about 340B it was a good intent with unintended consequences. The ability for hospitals to merge and acquire and really have dominant market shares has actually not increased efficiency, has not increased quality of care. 


It's actually resulted in them able to increase pricing 22%. I think we may have reached this place where there's going to be some market ability to move, but increasing, I think it's going to take regulation to move the dial and you're already starting to see states. Start just to move into that space a lot around the index pricing we talked about a lot about as I said earlier on 340B there were 19 states that have actually put something in place to try to get to that, and Congress has actually got in front of them a bill proposed, H. R. 3290, that's really going to allow HHS to require hospitals to account for, and they're able to audit and account for, how these dollars, both the tax exempt dollars and 340B dollars, are being used to drive care and value to the community. 


I think it's going to be a perfect storm of regulation. The fiduciary piece we talked about where plan sponsors are now going to have to take action or they're going to be liable. And three, I just think it is taking such a huge piece out of our economy. That it's just unsustainable and market forces will work to try and move that along. 


So I think it's going to be an interesting ride the next 18 to 24 months.  


[00:44:11] Stacey Richter: So Peter Hayes, I'm going to recommend that everybody follows you on LinkedIn. I think your LinkedIn posts do a great job capturing a lot of what's going on in the market.  Thank you so much for being on Relentless Health Value today. 


[00:44:24] Peter Hayes: Thank you. Thanks for the opportunity. 


[00:44:27] Stacey Richter: Peter Hayes. Hey, so do you subscribe to the weekly email? That comes out every week with the introduction of the show?  


[00:44:33] Peter Hayes: Actually, I do. It's one of, it's one of my top reads in the morning. As you know, I usually kind of repost a lot of the things that you put out there. 


I find them really right on point and a really useful tool to kind of figure out what's happening in the healthcare space is pretty dynamic right now.  


[00:44:49] Stacey Richter: Well, I appreciate it and I would encourage anyone who is listening to this to go over to our website. There actually is a pop up that pops up, ask for your name and your email address and then once a week after the show comes out, you get an email that has the full introduction of the show transcribed. 


So you have everything that you need in one place.